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Amazon's FireTV Is a Major Threat to Sony's PlayStation and Microsoft's Xbox

Amazon's FireTV could pressure Sony and Microsoft in the years ahead.

Amazon.com's (NASDAQ:AMZN) FireTV is one of the cheapest video game consoles you can buy. At $99 (plus $39 for the controller), it's much less expensive than Sony's (NYSE:SNE) PlayStation 4 ($399) and Microsoft's (NASDAQ:MSFT) Xbox One ($499). It even costs less than Sony's eight-year-old PlayStation 3 ($249) and Microsoft's nine-year-old Xbox 360 ($179), while the games, on average, retail for just a fraction of the price.

Of course, it isn't without trade-offs: Amazon's FireTV is nowhere near as powerful as Sony and Microsoft's dedicated consoles; yet Amazon's ability to disrupt the console space shouldn't be underestimated. While it won't happen overnight, Amazon's push into the video game market could put immense pressure on the existing console players.

But like all the consoles that have come before them, Sony and Microsoft's machines are static platforms. In other words, four years from now, the PlayStation 4 and Xbox One will still be offering the same hardware, but Amazon, if it sticks to the same schedule with the FireTV as it does with its Kindle Fire tablets (and it's likely, given that the FireTV uses similar hardware and a similar operating system), will be selling a much improved, and much more powerful, fourth-generation FireTV.

Amazon isn't using the Tegra K1 processor in the first-generation FireTV, but the recently unveiled mobile chip offers graphical capabilities on par with last the generation of consoles. So, while the Amazon-exclusive SevZero looks even worse than most of the games released for Microsoft's Xbox 360 back in 2005, a FireTV game released in 2018 could look as good, or perhaps better, than games released for current consoles.

Amazon is working to add in-game talentIn addition to improving hardware, Amazon should offer up quality, exclusive games in the years ahead. SevZero has been derided as a tired rehash, but don't expect that to be indicative of the sort of games Amazon Studios is capable of producing.

Amazon has been hiring experienced video game developers in recent months, most notably through the acquisition of Double Helix Games. Meanwhile, Amazon has snagged video game industry veterans behind well-regarded titles like Portal and Far Cry 2.

Quality exclusives often make or break a console -- Microsoft's Xbox might have never succeeded if it wasn't for Halo; Sony's PlayStation division has a treasure trove of exclusive intellectual property (Uncharted, God of War, Infamous, among others). That isn't to guarantee that Amazon Studios will create the next great video game franchise, but Amazon is at least trying, suggesting that video games will remain a crucial component of FireTV, rather than a forgotten feature.

Developers have warned that an open platform could obliterate Sony and MicrosoftPerhaps the most powerful argument for Amazon's FireTV comes from Nat Brown, a former Microsoft employee and co-creator of the original Xbox. Blogging last year, Brown noted that the traditional consoles from Microsoft and Sony were -- for various reasons -- at risk of being replaced by mobile-powered set-top boxes. Brown had believed that Apple was the company best positioned to dominate the market (and Apple may try later this year), but everything he wrote could just as easily apply to the FireTV:

Apple, if it chooses to do so, will simply kill Playstation, Wii-U and xBox by introducing an open 30%-cut app/game ecosystem for Apple-TV. I already make a lot of money on iOS -- I will be the first to write apps for Apple-TV when I can, and I know I'll make money.

With the FireTV, that's precisely what Amazon has done, allowing mobile developers easy access to the TV screen. Amazon may not have the same sort of cache with developers, but if the FireTV succeeds in building a large install base, it's easy to see mobile game developers shifting their focus to Amazon's device.

Don't underestimate the FireTVSome analysts have already written off the FireTV, lamenting that its weaker internals limit its ability to compete with Microsoft's and Sony's consoles. While that's certainly true today, investors shouldn't underestimate the FireTV's potential. Annual updates could bring the FireTV's horsepower up to par in the coming years, while Amazon's dedication to creating games in house suggests that the retailer is in it for the long haul.

Ultimately, the most potent force could be the indie developer scene, whose efforts have created a rapidly growing mobile game economy (up 130% last year). Armed with literally thousands of cheap games, Amazon's FireTV should put pressure on Sony's and Microsoft's much more expensive consoles.